Talking Points<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
· French Current Account contracts
· EUR labor costs remained contained
· EZ Industrial Production slips markedly
· <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US CA on tap hitting $500 Billion deficit?
Second straight night of very quiet trading in the majors as the Asian calendar was barren while Euro-zone data was decidedly second tier. In Europe, French Current account improved markedly shrinking to a deficit of -922M euros versus expectations of a much larger -3100M gap. Euro-zone Labor Costs also printed much better than forecast rising only 2.2% against 2.5% consensus. The data suggested that the 12 member region is seeing little price pressure on wages, a fact that should allow the ECB to moderate its hawkish posture and possibly delay another 25 basis point rate hike until the Fall. Finally, in a first sign that higher exchange rates may be crimping growth in the industrial sector, EZ Industrial Production fell unexpectedly -0.6% versus forecasts of a rise of 0.4%. On a year over year basis the figures still demonstrated an increase of 1.9%, however should the results show another month of decline, the data would raise serious concerns about the viability of EZ recovery which is so heavily depended on export growth. Despite the less than supportive data the EUR/USD continued to climb steadily reaching a weekly high of 1.2674 in early European trade.
The pair strength was really a function of dollars weakness in the wake of yesterdays disturbingly low TICs report. With TICS printing only $46.7 Billion surplus against expectations of $60 Billion the news stopped the two week dollar rally dead in its tracks. According to market experts, US needs to attract approximately $65-$70 Billion worth of capital per month in order to finance its ever burgeoning Current Account and Trade deficits. If yesterdays report was the start of a trend rather than a one off event, the news threatens to undermine the strength of the greenback as financing difficulties will begin to trump all other considerations in the currency market, including further rate hikes by the Fed. What will be the value of high US interest rates if US cannot attract sufficient capital to finance its deficits? Therefore, todays Current Account figures will again shed light on this issue. If the number prints greater than expected exceeding -$225 Billon, the news may push the dollar lower yet as US will now be on annual run rate of accumulating a $1 Trillion Current Account deficit.
FX Upcoming<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
| Currency | GMT | EST | Release | Expected | Prior |
| USD | 12:30 | 8:30 | Current Account Balance (1Q) | -222.0B | -223.9B |
| EUR | 13:15 | 9:15 | Italian Current Account (euro) (APR) | 320K | 302K |
| USD | 13:45 | 9:45 | <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />University Of Michigan Confidence Survey (JUN P) | 79.0 | 79.1 |
| Currency | GMT | Release | Actual | EST | Previous | Comments |
| NZD | 22:45 | Manufacturing Activity (1Q) | 1.0% | | 0.3% | Rose on flour, sugar, meat and butter sales. |
| EUR | 6:45 | French Current Account Balance (euro) (APR) | -922M | -3100M | -2124M | Deficit much better; failed to produce effect on euro |
| EUR | 8:00 | Italian Trade Balance (euro) (Total) (APR) | -1958 | -2250.0 | -1971.0 | Deficit shrank against expectations and more than heavily revised numbers. |
| EUR | 8:00 | Italian Trade Balance (euro) (EU) (APR) | -195M | -700.0M | -558.0M | |
| EUR | 9:00 | Euro-Zone Labor Costs (YoY) (1Q) | 2.2% | 2.5% | 2.1% | Above last months revised number. |
| EUR | 9:00 | Euro-Zone Ind. Production s.a. (MoM) (APR) | -0.6% | 0.4% | 0.6% | Surprising downturn month over month despite positive forecasts. |
| EUR | 9:00 | Euro-Zone Ind. Production s.a. (YoY) (APR) | 1.9% | 3.2% | 4.1% |
